Oct
15

Hotel Sales Market: ‘Active and Liquid’

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thumbs-up1The lodging sector’s performance lately and over the long term is giving rise to “unvoiced hopes” that this cycle will be different from its predecessors, Marcus & Millichap says in a new report. One macroeconomic trend that could create turbulence in the months ahead, though, is stock market volatility, the firm states.

“The recent turmoil in global equity markets illustrates the difficulty involved in anticipating unforeseen events capable of disrupting positive trends,” according to MMI’s report, with input from a team led by Peter Nichols, director, national hospitality group. In particular, the Federal Reserve’s timing on an interest rate increase, as well as the extent of its actions, could be affected by the markets’ uncertainty, triggering “a reconsideration among hotel owners of near-term objectives. An inevitable rise in the Fed Funds rate will likely affect the prime rate, a frequently used benchmark in hotel debt.”

At the moment, the hotel investment market remains liquid, with “considerable equity and competitive debt providers” both helping to sustain a high volume of transactions that are holding cap rates near cycle lows. MMI sees a tilt toward the upper midscale, with more properties trading in this bracket than in any other chain segment during the first half of the year. “More than half of these deals occurred in the 100 largest metros, but one-fourth took place in much smaller interstate, college and military markets to illustrate the ongoing search for yield,” according to MMI.

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